2007 (8) TMI 269 - HC - Income Tax

Whether the Tribunal was justified in rejecting the addition made by the Assessing Officer on account of variation in stock found in course of search and seizure operation and further the opinion that no surcharge was leviable in respect of search conducted during financial year 2001-02 even when the levy of surcharge has been provided by Part I of the First Schedule to the Finance Act, 2000 (10 of 2000) (first proviso to section 2(3) of the Act 10 of 2000)? Held that - Conclusion of the Tribunal that the addition made by the Assessing Officer on account of variation of stock found in the course of search was based on the assessment of facts by the Tribunal and no substantial question of law as such arose from the order of the Tribunal for decision in the appeal. Regarding surcharge under the proviso to section 113 of the Income-tax Act, 1961, the Tribunal has held that the proviso to section 113 under which the surcharge is levied was inserted by the Finance Act, 2002, with effect from June 1, 2002, and since the search took place on November 30, 2001, i.e., before introduction of the proviso to section 113 of the Income-tax Act, 1961, the Commissioner of Income-tax (Appeals) had rightly deducted the surcharge levied by the Assessing Officer. It is not in dispute that the search took place on November 30, 2001, and that the Finance Act, 2002, introduced the proviso to section 113 with effect from June 1, 2002, and, therefore, no surcharge was leviable under the proviso. Thus we hold that the Tribunal is justified in rejecting the additions made by the Assessing Officer on account of variation in stock and in forming an opinion that no surcharge is leviable.

Summary

Issues:
1. Addition on account of variation in stock found during search and seizure operation.
2. Levying of surcharge in respect of search conducted during a specific financial year.

Analysis:
1. Variation in Stock:
The appeal involved an addition of Rs. 30,59,822 on account of variation in stock found during a search operation. The Commissioner of Income-tax (Appeals) found that the stock of sister concerns of the respondent should also be considered while determining the variation in stock. After considering the combined stock of all group concerns, the addition was reduced to Rs. 4,96,021. The Tribunal upheld this decision, noting practical difficulties in accurately estimating the weight of various commodities, the improper method of stock weighment during the search, and the absence of incriminating material proving transactions outside the books. The Tribunal also highlighted specific details regarding the shortage in cotton bales, supported by relevant documents. Ultimately, the Tribunal concluded that the addition made by the Assessing Officer was not justified based on the available evidence.

2. Surcharge Levying:
Regarding the surcharge under the proviso to section 113 of the Income-tax Act, 1961, the Tribunal held that since the search took place before the introduction of the proviso to section 113 by the Finance Act, 2002, no surcharge was leviable in this case. The search occurred on November 30, 2001, while the proviso was introduced with effect from June 1, 2002. Therefore, the Commissioner of Income-tax (Appeals) rightfully deducted the surcharge levied by the Assessing Officer. The Tribunal's decision to reject the surcharge was based on the clear timeline of events and the relevant provisions of the Income-tax Act.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the appeal by the Commissioner of Income-tax. The Tribunal was deemed justified in rejecting the additions made on account of stock variation and in forming the opinion that no surcharge was leviable in this particular scenario.